Better Ways to Invest Your Tax Refund Money

Getting a tax refund is always exciting. It feels like you’ve just won the lottery. Many people think of tax refunds as free money to spend however they wish. Sure, you can do that, but you should really think of this as an opportunity to make smart investments. Why? Well, a tax refund isn’t free money. It’s actually money that the government borrowed from you through the year. If you get a refund, it’s because you actually paid too much in to the government. You can either have this adjusted or, if you like getting a refund, you can spend it wisely. Here are a few smart investments you can make with your tax refund money.

Start an Emergency Fund

Do you have money saved in case of emergencies? If you do, great! If not, this should be one of your financial priorities. Dave Ramsey, financial guru, recommends that everyone at least has what he calls a “baby” emergency fund of $1,000. This is just the start of an emergency savings account, though. Your actual goal is to save three to six months of expenses to ensure that you can pay all of your bills and live comfortably should you ever experience job loss or medical problems that keep you from work.

Pay Off Credit Card Debt

The average American has more than $5,000 in credit card debt. Add in those insanely high interest rates (especially if you have poor credit), and you’ll see that credit card debt can be a vicious cycle that’s hard to escape. It’s difficult to put a dent in those balances when you’re just paying the minimums. Pay off as much credit card debt as you can. Once you free yourself from those monthly payments, start putting that money into savings.

Buy Life Insurance

Do you have enough money saved to take care of your dependents for the rest of their lives if something should happen to you? The answer to that question for most of us is a resounding, “No.” That’s what life insurance is for. A term life policy will help cover your funeral expenses, medical bills, pay off any debts and leave some money to your family to live off of.

Catch Up on Bills

If you’re living paycheck to paycheck – or worse – your paychecks aren’t enough to cover the bills after you’ve fallen behind, use this money to catch up on your bills. You’ll find it’s a huge relief not to receive those collection calls every day. Catch up the mortgage, the car payment or whatever you’re behind on. It will give you peace of mind.

Make Home Improvements

The biggest investment of your life – your home – is a great way to invest your tax refund. Have you been dreaming of remodeling that kitchen or bathroom? Have you been pining for a two-car garage instead of a single car garage? Your tax refund can get you off to a good start for adding on to or improving your home.

There you have it: five smart ways to invest your tax refund. Although that three day mini-vacation may sound tempting, consider whether it’s really the best use of your money. Temporary pleasure doesn’t compare to sound financial investments that pay off both now and years down the road.